Consumption and macroeconomic policies: Evidence of asymmetry in developing countries

Abstract

Purpose

The paper aims to examine asymmetry in the cyclical behavior of private consumption in a sample of nine developing countries in the Middle East.

Design/methodology/approach

The empirical model includes three policy variables: government spending, the money supply, and the exchange rate. Anticipated movements in these variables are likely to vary with agents' forecasts of macroeconomic fundamentals and, therefore, determine planned consumption. Unanticipated policy changes, in contrast, determine cyclical consumption.

Findings

The results indicate that fluctuations in private consumption are mostly cyclical. The stabilizing function of policy shocks varies across countries and appears to be asymmetric within countries.

Originality/value

Asymmetry necessitates a thorough evaluation of the positive and negative effects attributed to changes in policy variables and the necessary reforms to relax binding constraints.

Citation

Kandil, M. and Aghdas Mirzaie, I. (2007), "Consumption and macroeconomic policies: Evidence of asymmetry in developing countries", International Journal of Development Issues, Vol. 6 No. 2, pp. 83-105. https://doi.org/10.1108/14468950710843370